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Financial shockwave: Banks teetering on the edge – Will they collapse?


softbank in crisis, financial news

The current state of American banks is again drawing attention due to similarities with last year's banking sector crisis. That period was marked by the rapid failure of several local banks, sparking widespread concern. The focal point now is New York Community Bank, which has been facing difficulties since the beginning of this year.


Additionally, there's growing anxiety around another financial institution that has seen its share value plummet by nearly 30%. This situation raises a critical question: Are these troubles isolated incidents affecting individual banks, or are they indicative of the onset of a broader banking crisis?


New York Community Bank's shares experienced substantial losses last week, igniting fresh worries about the bank's stability. Adding to the sector's woes, the shares of Softbank Group have triggered additional alarm. These shares observe a significant decline of 28.35% in the over-the-counter market, plummeting from 30.79 USD to about 22.06 USD.



This sharp drop has led to heightened scrutiny and concern among investors and market analysts, as it reflects potential underlying issues within these financial institutions.


Market analysts are pondering the reasons behind the dramatic fall in Softbank's share price. A key factor seems to be the impending maturity of a large portion of Softbank's debt on March 8th, which has presumably led to a decrease in the company's financial reserves.


Furthermore, on March 1st, Softbank announced the issuance of its 59th unsecured bond, valued at 550 billion yen (approximately 3.7 billion dollars). This bond issuance, aimed at retail investors, was managed by Aozora Bank, which has itself been in the news for projecting a substantial net loss of 28 billion yen (around 191 million dollars) for the fiscal year ending March 31st.


This contrasts starkly with its earlier forecast of a 24 billion yen net profit, suggesting significant financial turmoil.



The Bank Term Funding Program (BTFP) is an emergency loan facility established by the Federal Reserve in March 2023. This program was a direct response to the banking crisis that occurred last year, exemplified by major failures at institutions like Signature Bank and Silicon Valley Bank . The BTFP aims to provide essential liquidity to the U.S. depositary institutions in times of need.


Under this program, eligible banks, savings associations, and credit unions can access one-year loans, secured by high-quality collateral like U.S. Treasury bonds, agency debt, and mortgage-backed securities. This program is a critical component of the Federal Reserve's strategy to stabilize and support the banking sector during periods of financial stress.



A significant date looms for the BTFP: March 11th, 2024. On this day, the program is scheduled to stop offering new loans. This impending deadline is causing apprehension among financial experts, who fear that it could intensify the current banking crisis.


The concern is that banks, particularly those that have been relying heavily on this government-backed support, may find themselves unable to cope once this lifeline is withdrawn. The potential fallout from this could be significant, not only for the banks themselves but also for the broader financial markets and economy.


09.03.2024



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